Services, transport ‘clear beneficiaries’ from reopening tailwinds; HRnet favoured: Maybank
Yong Hui Ting
DESPITE a slower projected gross domestic product (GDP) growth for Singapore in 2023, Maybank Securities believes the economy will likely be a “half-full” one, with some sectors experiencing a greater expansion than others.
This includes sectors such as services and transport — which the brokerage was most bullish on — as well as industrials, telecommunications and gaming, among others.
Of these, Maybank’s head of research Thilan Wickramasinghe was particularly optimistic on companies such as HRNet, Singtel, DBS and CapitaLand Investment, among others, which were revealed at a market outlook briefing on Tuesday (Feb 7).
The basket of companies were favoured for their strong and competitive moat as well as their potential for growth amid growing regional consumption, policy support and environment, social and governance (ESG) factors.
The positive outlook comes as the analyst noted how Singapore has shown resilience in the face of the pandemic, global volatility surrounding the Russia-Ukraine war, US-China tensions as well as supply chain disruptions.
While the China reopening could have positive spillovers from boosting exports, increasing inbound arrivals and a revival of deal flow, several catalysts were also at play, said Wickramasinghe.
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Key upsides to the Singapore market, in his view, include restructuring efforts by government-linked companies, rising ESG investment inflows, supply chain relocations, Covid-19 resilience and overseas deal flows.
On the other hand, downside risks such as a prolonged recession in the US or Europe could also impact margins and volumes across sectors and increase operating risks, along with higher taxation in the form of carbon tax.
Still, there are opportunities to be found within sectors.
Banks, for one, are likely to deliver resilient earnings momentum underpinned by rising interest income and a revival of fee income, said Wickramasinghe, who selected DBS as one of his top picks for the sector.
The analyst favoured DBS for having the strongest net interest margin (NIM) upside from low-cost funding and rising rates.
Maybank has a “buy” recommendation on DBS with a target price of S$42.69, which represents a nearly 20 per cent upside as the bank gears towards China’s reopening. Wickramasinghe added there could be a dividend upside surprise from the bank.
Those looking for opportunities may also find them within the services and transport sector, which Wickramasinghe said were “clear beneficiaries” from reopening tailwinds, as almost all countries have eased movement restrictions and are adapting to living alongside the Covid-19 pandemic.
“As China finally reopens its borders, this should also lead to increased demand for travel-related, retail, F&B and properties in Singapore, as the country is often ranked as one of the popular destinations among (the) mainland Chinese,” Wickramasinghe noted.
He also liked recruitment agency HRNet, which has a “buy” call and a target price of S$1.07 – over 30 per cent from its current trading price of S$0.82. He believes the company has a strong and established human resource franchise, adding to its strength as Singapore competes for global talent.
Meanwhile, Maybank’s top growth picks included Singtel – with a “buy” call and a target of S$3.15 – as well as CapitaLand Investment. Though the research house did not specify a target price for the latter at the briefing, it looked upon the real estate investment trust (Reit) favourably over its strong management platform, global reach and access to Capitaland assets. It said that these, in turn, would drive fees and boost the Reit’s funds under management.
On a macro outlook, Maybank forecasted the Straits Times Index to reach S$3,629 over the 12-month period, with a price to earnings ratio of 13.9 times and a price to book ratio of 1.2 times.
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